Paypal Holdings Inc (NASDAQ:PYPL) shareholders have witnessed an increase in enthusiasm from smart money lately. Our calculations also showed that PYPL is among the 30 most popular stocks among hedge funds and ranked 9th at the end of December. Hedge fund sentiment towards the stock is currently at an all time high.
This is usually a very bullish signal. For example hedge fund sentiment in Xilinx Inc. (XLNX) was also at its all time high at the beginning of this year and the stock returned more than 46% in 2.5 months. We observed a similar performance from Progressive Corporation (PGR) which returned 27% and outperformed the SPY by nearly 14 percentage points in 2.5 months. Hedge fund sentiment towards IQVIA Holdings Inc. (IQV), Brookfield Asset Management Inc. (BAM), Atlassian Corporation Plc (TEAM), RCL, and CRH hit all time highs at the end of December, and all of these stocks returned more than 20% in the first 2.5 months of this year.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 32 percentage points since May 2014 through March 12, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
Let’s review the new hedge fund action encompassing Paypal Holdings Inc (NASDAQ:PYPL).
What does the smart money think about Paypal Holdings Inc (NASDAQ:PYPL)?
At Q4’s end, a total of 103 of the hedge funds tracked by Insider Monkey were long this stock, a change of 6% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in PYPL over the last 14 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).
More specifically, Lone Pine Capital was the largest shareholder of Paypal Holdings Inc (NASDAQ:PYPL), with a stake worth $484.6 million reported as of the end of September. Trailing Lone Pine Capital was D E Shaw, which amassed a stake valued at $384.9 million. Third Point, Coatue Management, and Melvin Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.
Consequently, specific money managers were leading the bulls’ herd. Point72 Asset Management, managed by Steve Cohen, established the most outsized call position in Paypal Holdings Inc (NASDAQ:PYPL). Point72 Asset Management had $174 million invested in the company at the end of the quarter. Joel Greenblatt’s Gotham Asset Management also made a $61.5 million investment in the stock during the quarter. The other funds with brand new PYPL positions are Dmitry Balyasny’s Balyasny Asset Management, Andrew Sandler’s Sandler Capital Management, and Jonathan Soros’s JS Capital.
Let’s now take a look at hedge fund activity in other stocks similar to Paypal Holdings Inc (NASDAQ:PYPL). These stocks are Royal Bank of Canada (NYSE:RY), Honeywell International Inc. (NYSE:HON), AstraZeneca plc (NYSE:AZN), and GlaxoSmithKline plc (NYSE:GSK). All of these stocks’ market caps match PYPL’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| RY | 14 | 655003 | -3 |
| HON | 57 | 2830615 | 10 |
| AZN | 21 | 1348061 | -5 |
| GSK | 23 | 1627089 | -1 |
| Average | 28.75 | 1615192 | 0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 28.75 hedge funds with bullish positions and the average amount invested in these stocks was $1615 million. That figure was $4378 million in PYPL’s case. Honeywell International Inc. (NYSE:HON) is the most popular stock in this table. On the other hand Royal Bank of Canada (NYSE:RY) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks Paypal Holdings Inc (NASDAQ:PYPL) is more popular among hedge funds. Our calculations showed that top 15 most popular stocks among hedge funds returned 19.7% through March 15th and outperformed the S&P 500 ETF (SPY) by 6.6 percentage points. Hedge funds were also right about betting on PayPal as the stock returned 19.8% and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
